"Let me tell you about an incredible
ground-level business opportunity," and you are invited to a house or to
lunch for "a discussion." Funny enough, you feel sick in your gut
that there is some hidden agenda or deception. "Probably a multi-level
marketing (MLM) organization," you think. Suppose it is? Should you trust
your instincts? Is there anything wrong with MLM?

A tutorial on market saturation hardly seems
necessary in most business discussions, but with MLM, unfortunately, it is.
Common sense seems to get suspended when considering if MLMs are viable, even
theoretically, as a profitable means of distribution for all parties involved.
This suspension is created by a heightened expectation of "easy
money," but more on that later.

New, Innovative?

MLM can no longer claim to be new and, thus,
exempt from the normal rules of the market and the way goods and services are
sold. They have been tried and, for the most part, have failed. Some have been
miserable failures in spite of offering excellent products.

Marketing innovations are not rare in the modern
world, as evidenced by the success of Wal-Mart, which found a more efficient
and profitable way to distribute goods and services than the status quo,
providing lasting value to stockholders, employees, distributors, and consumers.
But this is not the case with any MLM to date, and after 25 years of failed
attempts, it is time to point out the reasons why.

Don't Some People Make
Money in MLM?

First, we will analyze the "driving
mechanism" of MLMs. We will detail how they are intrinsically unstable,
guaranteed by design to oversaturate the market with no one noticing. We will
look at why MLMs can never equalize into profitability the way companies in the
real world can, so that the result will be that the organization as a whole cannot,
even in theory, be profitable. When this inevitable destiny occurs, the only
money to be made is not from the product or service but from the losses of
people lower down in the organization.

Thus the MLM organization becomes exploitative,
and many high-level MLM promoters have been shut down, the
"executives" incarcerated, for selling the fraud of impossible
success to others. Other, larger MLMs have survived by hiring large batteries
of attorneys to ward off federal prosecutors, even bragging about the funds
they have in reserve for this purpose.

The unfortunate "distributor" at the
bottom is the loser, and once this becomes apparent beyond all the slick
videotapes and motivational pep-talks, good people start to get a bad taste in
their mouths about the whole situation.

So, yes, money can be made with MLM. The
question is whether the money being made is legitimate or "made" via
a sophisticated con scheme. And if MLM is "doomed by design" to fail,
then the answer is, unfortunately, the latter.

But how exactly does this happen, and must it
always?

Doomed by Design?

The first question is this: Is any company
choosing this marketing strategy destined to fail, to degenerate into an
exploitative venture, regardless of how good the product is?

To see this clearly we must go through an,
otherwise, obvious and elementary discussion of how any business must be
careful not to overhire, overextend, or oversupply a market.

The Real World

Any business must carefully consider supply and
demand. For example, if the ReVo Corporation thinks that it will have a
full-fledged fad on their ovoid sunglasses next summer, perhaps they should
plan to build and distribute, say, 10M units. This involves gearing up
factories, setting up distribution and dealer networks, and carefully managing
the inventories at each level so that ReVo will still have credibility with
their distributors, retail outlets, and the public the following year.

If it turns out that there is a "run"
on ReVo products, and they sell out in mid-June, then they have miscalculated
demand and will miss out on profits they could have made. The more serious
problem, however, is overestimating the saturation point for the product. If
they make 10M units, and sell only 2M units, this may be the end of ReVo as a
company.

The all-too-obvious point here is that
management of supply and demand, and keen insight into realistic market
penetration and saturation are crucial to any business, for any product or
service. Mismanagement of this aspect of a business will eclipse good market
access, excellent product design, human resource assets, production quality,
and so on. Simply stated, a failure to "hit the target" of supply and
demand can ruin a company if the market is oversaturated.

Market Dynamics and the
End of the Cold War

Interestingly, the issue of supply and demand is
what brought the USSR to its knees. By design, the Soviet government tried to
macro-manage supply, where bureaucrats would decide how many potatoes were
needed, how much toilet paper, etc. Assuming these bureaucrats did the best
they could, unfortunately their efforts to deliberately manipulate the control
"knob" of supply and demand was not good enough. Notwithstanding
their good intentions, they were usually wrong, which created huge shortages and
surpluses, and led to a massive economic collapse.

Seeing the disastrous end of market naiveté in
Russia should help clarify the fundamental problem with the MLM approach. In
the real world, the profit of a company is directly related to the skill and
prescience of the "hand" on the "supply knob," so to speak.
In the USSR, that "hand" could not react fast or accurately enough to
market realities through the best efforts of the bureaucrats.

With MLMs, the situation is much worse. Nobody
is home. Even the Soviets had someone thinking about how much was enough! If
the bureaucrat in Russia was having a hard time trying to play Adam Smith's
"invisible hand" in setting the supply level in the Soviet Union,
then an MLM "executive" is in a truly unfortunate position. Not only
is there no one assigned to make the decision of how much is enough, the MLM is
set up by design to blindly go past the saturation point and keep on going. It
will grow till it collapses under its own weight, without even a bureaucrat
noticing.

MLM is like a train with no brakes and no
engineer headed full-throttle towards a terminal.

"Everyone Will Want
to Buy This Product!"

All products and services have partial market
penetration. For example, only so many people wish to use a discount broker, as
evidenced by the very successful but only partial market penetration of Charles
Schwab. Not everyone wishes to join a particular discount club, or buy gold, or
drink filtered water, or wear a particular style of shoe, or use any product or
service. No one in the real world of business would seriously consider the thin
arguments of the MLMers when they flippantly mention the infinite market need
for their product or services.

The Demand Problem: Of
Widgets and MLMs

Imagine a neat new product called a Widget that
will sell for $100 (a fixed price, to keep it simple). Now, while everyone
could use a Widget, not everyone will. Some will be afraid of anything new.
Some will be loyal to existing brands. Some will want to buy an inferior
product for less money. Some will want a more expensive product for prestige,
regardless of quality. The reasons go on and on, and the fact is that only
"X" Widgets will sell at $100.

The question for would-be marketeers is... what
is "X," and how can it be predicted to maximize profits? The fact
that "X" is hard to pin down does not mean that it does not exist,
and every Widget built beyond "X" will end up producing a problem for
the organization. The market only wants "X" Widgets at $100. What are
you going to do with your extra inventory of Widgets beyond "X" that
no one wants, and the sales people you hired to sell them?

No one can perfectly predict "X," and
the situation is not nearly as simple as considered here, but the objective for
marketeers is to forecast "X" as closely as possible in order to
provide lasting value to all parties involved: to avoid missed opportunities as
well as waste, loss, or failure.

The MLM Forecasting
Approach: Ignoring the Target

Who has an eye on "X," the point of
market saturation at a given price, in an MLM? Well, the funny thing, or
perhaps the tragic thing, is that "X" will be reached and exceeded
without anyone noticing or caring.

Let's just suppose that "X" has been
reached today in a particular MLM; the number of possible units sold at this
price has just been exceeded, and you happen to be a starry-eyed prospect
sitting in an MLM meeting listening to the pitch. Now consider: Does anyone in
this company know about "X"? Does anyone care? Is the issue being
suppressed on purpose for some other motive? Since we are supposing that the
market saturation number "X" has been reached, everyone joining the
MLM from now on is buying into a false hope. But that is not what the speaker
will be saying. He will be telling you, "Now is the time to join. Get in
on the 'ground floor'." But it is all a lie, even though the speaker may
not know it. The total available market "X" has been reached and
nobody noticed. All the distributors will lose from here on out. Could this be
you? How could you possibly know at what point you will become the liar in an
MLM?

Pop or Drop

Perhaps a better paradigm than the runaway train
analogy offered earlier of how MLMs perform over time is this: a helium balloon
let loose in an empty room with a spiked ceiling, where product quality is
analogous to the amount of helium. The better the product, the faster the
balloon will rise, accelerating unhindered, towards disaster. The other option
would be the case of a lousy product, in which case the balloon will sink of
its own accord, never getting off the ground. To be sure, equilibrium is not in
the cards, except perhaps as an accident, and then only temporarily. MLMs are
intrinsically unstable. For any company that chooses an MLM approach, it's pop
or drop.

MLMs vs. the Real World

The basic question that needs to be asked is
this: If this product or service is so great, then why isn't it being sold
through the customary marketing system that has served human society for
thousands of years? Why does it need to resort to a "special
marketing" scheme like an MLM? Why does everyone need to be so inexperienced
at marketing this! Is the product just a thin cover for what is really a
pyramid scheme of exploiting others? But more on that later.

From Contracted,
Protected Distribution... to Mayhem

Imagine that Wendy's became suddenly possessed
by the idea that "everyone needs to eat," and opened four Wendy's
franchises on the four corners of an intersection in your neighborhood. Who
would benefit from this folly? The consumer? Certainly not the franchises; they
would all lose. Wendy's corporate? Perhaps temporarily, by speculative
inventory sales while the unfortunate franchises were under the delusion that
they could all make money. But in the end, the negative image of four outlets
dying a slow death would likely offset the temporary inventory sales bubble.
Even the most unreflective of the hapless franchisees would think twice about
doing business in such a manner again. This is why real-world distributorships
and franchises are contractually protected by territory and/or market.

Again, the simple fact is that even the most
successful products will have partial market penetration. The same is true for
services. Demand and "market share" are finite, and to overestimate
either is catastrophic.

So why are MLM promoters obscuring this? Who is
in control of the supply "knob," carefully and skillfully managing
the size of the distribution channels, number of salespeople, inventory, etc.,
to insure the success of all involved in the business? The truth is chilling:
nobody.

Imagine trying to write a computer model of how
MLMs work, and you will see this point most vividly. An MLM could never work,
even in theory. Think about it.

The People Machine

Chernobyl had a control system that failed. MLMs
have no control mechanisms at all.

Where is the "switch" that can be flipped
in an MLM when enough sales people are hired? In a normal company a manager
says, "We have enough, let's stop hiring people at this point." But
in an MLM, there is no way to do this. An MLM is a human
"churning" machine with no "off button." Out of control by
design, its gears will grind up the money, time, credibility, and
entrepreneurial energy of well-meaning people who joined merely to supplement
their income. Better to just steer clear of this monster to begin with.

There is simply no way to avoid the built-in
failure mechanism of MLMs. If a company chooses to market this way, it will
eventually "hire" (with no base pay and charging to
join) far too many people.

Thus, the only "control system" will
be the inevitable losses and subsequent bad image the MLM company will gain
after it does what it was designed to do: fail. And sooner or later we have got
to stop blaming this particular MLM company or that,
and admit that the MLM technique itself is fundamentally flawed.

For most MLMs, the product is really a mere
diversion from the real profit-making dynamic. To anyone familiar with MLMs,
the previous discussion (which focused so much on the fact that MLMs are
"doomed by design" to reach market saturation and thus put the people
who are legitimately trying to sell the product into a difficult situation) may
seem to miss the point. The product or service may well be good, and it might
oversaturate at some point, but let's get serious. The product is not the
incentive to join an MLM. Otherwise people might have shown an interest in
selling this particular product or service before in the real world. The
product is the excuse to attempt to legitimate the real money-making engine.
It's "the cover."

Intuitively, we all know what is really going on
with MLMs. Just don't use the word "pyramid"!

"You see, if you can convince ten people
that everyone needs this product or service, even though they aren't buying
similar products available in the market, and they can convince ten people, and
so on, that's how you make the real money. And as long as you sell to a few
people along the way, it is all legal." Maybe...

But the way to make money in all this is clearly
not by only selling product, otherwise you might have shown an interest in it
before, through conventional market opportunities. No, the "hook" is
selling others on selling others on "the dream."

Math and Common Sense

MLMs work by geometric expansion, where you get
ten to sponsor ten to sponsor ten, and so on. This is usually shown as an
expanding matrix (just don't say "pyramid"!) with corresponding
kick-backs at various levels.

The problem here is one of common sense. At a
mere three levels deep this would be 1,000 people. There goes the neighborhood!
At six levels deep, that would be 1,000,000 people believing they can make
money selling. But to whom? There goes the city! And the MLM is just getting
its steam going. Think of all the meetings! Think of all the "dreams"
being sold! Think of the false hopes being generated. Think of the money being
lost.

It Will Fail??? It
Cannot Fail???

Nothing irritates a die-hard MLMer more than the
preceding argument. If you point out the absurdity, for example, that if
"the pitch" at an Amway meeting were even moderately accurate, in
something like 18 months Amway would be larger than the GNPof the
entire United States, then listen closely for a major gear-shift: "Well,
that is absurd, of course. Not everyone will succeed, and so the market will
never saturate."

Well, which is it? Are we recruiting
"winners" to build a real business, or planning by design to profit
off of "losers" who buy into our "confidence"?

During "the pitch," anyone can make it
work. "It's the opportunity of a lifetime." "Just look at the
math!" But mention the inevitable saturation and the losses this is going
to cause for everyone, and then you'll hear, "Of course it would never
really work like that." "Most will fail," you will be told,
"but not you, Mr. Recruit. You are a winner. I can just see it in your
eyes."

If you are a starry-eyed recruit, it will grow
as presented. If you are a logical skeptic, then of course it would never
really work like that.

But the dialog usually never even gets to this.
The fact that MLM is in a mad dash to oversupply is largely chided as mere
"stinkin' thinkin'." Expert MLMers know how to quickly deflect this
issue with parable, joke, personal testimony, or some other sleight of mind.

New Solution: A Retarded
MLM

Some modern incarnations of MLMs attempt to
address this particular problem by limiting the number of people you can
sponsor, say, to four. But the same geometric expansion problems exist; the
failure mechanism has just been slowed down a bit. And now there is the added
problem of even more unnecessary layers in the organization.

The claim that an MLM is merely a "common
man" implementation of a normal real-world distribution channel becomes
even more absurd in this case. Imagine buying a product or service in the real
world and having to pay overrides and royalties to five or ten unneeded and
uninvolved "distributor" layers. Would this be efficient? What value
do these layers of "distributors" provide to the consumer? Is this
rational? Would such a company exist long in a competitive environment?

Confidence Men and the
Shadow Pyramid

The age-old technique of "con men" is
to create "confidence" in some otherwise dumb idea by diversion of
thought, bait, or force of personality. The victim gets confidence in a bogus
plan, and, in exchange, the con man gets your money. MLMers are very high on
confidence.

Since the brain inevitably intrudes itself into
the delusion that an MLM could ever work, spirits drop and attitudes go sour.
But this depressive state can itself be exploited. As doubts grow when the MLM
does not do what recruits were first "con"fidenced to expect, then a
further profit can be made keeping the confidence going against all common
sense.

Thus, a parallel or "shadow" pyramid
of motivational tapes, seminars, and videos emerges. These are a "must for
success," and recruits are strong-armed into attending, buying, buying,
and buying all the more. This motivational "shadow pyramid" further
exploits the flagging recruits as they spiral inexorably into oversaturation
and failure. The more they fail, the more "help" they need from those
who are "successful" above them.

So, MLMs profit by conning recruits up-front
with a "distributorship fee," and then make further illicit money by
"confidencing" these hapless victims as they fail via the
"sale" of collateral material.

Special MLM
"Job" Offer: A Losing Proposition

Would a rational person, abreast of the facts,
go to work selling any product or service if he or she knew that there was an open
agenda to overhire sales reps for the same products in the prospective
territory?

What do you think? Is this a good
"opportunity" or a recipe for collective disaster?

So, as the saying goes, "Get in
early!" This is a rationalization on the level of "getting in
early" on the L.A. looting riots. If profit from the sale of products is
fundamentally set up to fail, then the only money to be had is to
"loot" others by conning them while you have the chance. Don't miss
the "opportunity," indeed!

Where is the money coming from for those at the
top? From the sucker at the bottom... as in every pyramid scheme. The product
could be, and lately has been, anything.

The important thing is to exploit people while
the exploiting is good, if you want to make quick money at MLM.

While issues of morality and ethics can be
tricky to discuss, materialism and greed are universally condemned by every
major religion, and even by most of the irreligious. This does not mean people
are not materialistic or greedy; in fact, the common ethical call to not be so
is strong evidence that we are.

For most people, this means if we are going to
be materialistic or greedy, we would rather not be obvious about it. Thus,
Madison Avenue has subtle, highly polished ways of appealing to these vices
without being heavy handed. We don't mind so much... as long as it is
"veiled." This hypocrisy, while sad, is the status quo. So, Madison
Avenue is trying to be ever more subtle in appearing not to be manipulating our
immoral "bent" towards greed and materialism.

A Blatant Appeal to
Materialism and Greed

Not so with the MLM crowd. Pick up any brochure
or videotape for an MLM and you are more than likely to see a cheesy, obvious,
and blatant appeal to greed and materialism. This is offensive to everyone,
even die-hard materialists. Typical is an appeal to "the American
dream." Usually there will be a mood shot of a large new home, a luxury
car, a boat, perhaps a beautiful couple boarding a Lear jet, and so on.

While this need not necessarily be part of the
MLM approach, it usually is.

Such a transparent appeal should make people
suspicious. "Why the bait?" "Are they trying to 'get my juices
going' so that my brain turns off?" "Couldn't they show people doing
more wholesome things with the money they make?" "If this is really a
legitimate opportunity, why not focus on the market, product, or service
instead of people reveling in lavish materialism?"

But we have reason enough to know, having read
this far, why the distraction is needed. Unbridled greed suspends good
judgment. When the eyes gloss over in a materialistic glaze, common sense is a
stranger.

Besides being cheesy and offensive to our
sensibilities, this is not a big deal for participants, right? But consider
that all companies must have control over the way they are presented to the
public. Thus, an MLM has the right and obligation to dictate what material is
used. Otherwise any agent could say whatever he or she liked about the nature
of the company, causing obvious problems. Again, it would take too much time to
audit and approve each individual's idea for a presentation where the goal is
mass marketing. Using "boilerplate" presentations affords the added
benefit of consistency. This is basic "information quality control."

The net effect is that the MLM rep is
"stuck" with the company-approved video, brochure, and presentation
outline.

"Not Me, I Would
Never Stoop That Low!"

In 1991, some distributors in the MLM FUND
AMERICA began to produce their own, improved recruitment material. They were
summarily fired, which did not please them since many of them were founding
members who had "gotten in early."

Later the same year, by the way, the founder of
FUND AMERICA was arrested for having generated some 90% of revenues selling
"distributorships" versus product... making it clear that this
particular MLM was little more than a pyramid scheme.

Job Opening: Salesperson
of Sin!

Do you want to be involved in the blatant
promotion of values contrary to your belief system?

In most MLMs you will have no choice. You are
going to have to sit through meeting after meeting after meeting after meeting.
You are going to be "motivated" to coerce your friends and family to
hear "the pitch." This is the way the "dream" is planted
and fertilized. Get used to it.

If you are a materialist, you only have to get
over the cheekiness of the presentation. But if you do not wish to promote such
ideas, if you consider them sinful, then this puts you at the focal point of a
moral dilemma. Do you wish to be a salesperson for materialism?

Lack of Information
Quality Control: An MLM Incentive?

On the flip-side of the issue of being stuck
with the recruitment "pitch" is the fact that the MLM organization is
otherwise loose, to say the least. This is part of the appeal to many, to
"be your own boss."

But in practice this leads to loony product
claims, many of which are deceptive and some of which can be positively dangerous.

Hyperbole is a given in an MLM. When
inexperienced salespeople are turned loose to sell on full commission without
supervision or accountability, what else could happen?

Since MLM organizations are notoriously
flash-in-the-pan, one has to wonder why any new company would choose this
flawed marketing technique. Perhaps one of the things to consider is that the
MLM organization can effectively skirt the Federal Trade Commission by using
word-of-mouth testimonials, supposed "studies" done by scientists,
fabricated endorsements, rumors and other misrepresentations that would never
be allowed to see the light of day in the real world of product promotion,
shady as it is.

Thus, MLM has evolved into a "niche":
it can be used to sell products that could not be sold any other way. An MLM is
a way to get undue credibility by exploiting people's personal friendships and
relationships via "networking." This is an intrinsic moral difficulty
with MLMs that will be expanded in the last section.

MLM Sales Technique:
Rumors, Slander, Defamation

Hyperbole is not limited merely to product
claims, however. When MLMers turn to their competitors it can get ugly indeed.
Some of the most outlandish rumors of modern history can be traced to MLMs. In
recent years, for example, the international rumor that the president of a
major real-world corporation was a Satanist, and that the logo of his company
contained occult symbols, turned out to have a commercial motive
and was traced to specific Amway distributors. These were successfully sued in
1991, but the rumor persists. And how much else of the MLM negative "sales
pitch" is fabrication or outright lie? Not all the negative selling claims
are as scandalous or widespread as the previous example, but the MLM culture
produces so much of this stuff it would be hard to prosecute it all.

Again, what else could be expected from
inexperienced salespeople thrown into an oversaturated sales market on full
commission and no accountability?

Negative selling is not unique to MLMs, but MLMs
have a legacy of fostering a culture of credulity, of bizarre
"gossip-as-fact." After all, this is a friend telling me this!

Telling lies about people or groups is slander.
Systemic and malicious slander is illegal in most civilized countries. Slander
is a sin listed next to murder and adultery in Biblical texts. But how will you
know when you become the slanderer by repeating what you heard in an MLM
meeting?

Great Men?

Another morally questionable practice that is
not intrinsic to MLMs, but seems axiomatic, is the pent-up idolatry of the
leaders.

In FUND AMERICA, the "approved
materials" showed what a great man the founder was, depicted the depth of
his management experience, showed him in mood shots, etc. It is easy to swoon
in admiration of such a powerful, visionary man, dedicated to bringing this
wonderful opportunity to common Americans like us.

It turned out he was a criminal fugitive from
Australia, where he had been run out of town for doing the same.

But you would never guess it from the company
material. A great man.

There are more than a few MLM
"executives" like this who will pop up tomorrow in the MLM du jour.
MLM exploitation can be very profitable and the jail sentences light. Let the
MLM "dream" buyer beware.

I have been taken to task for making this point
too strongly--and do not wish to imply that all MLM leaders have criminal
records--but it does pay to do some research here. Are the idols you are being
asked to worship in MLM worthy of respect, or contempt? Have they been
prosecuted or sued for exploiting people in the past? Have they done prison
time?

Do not expect to hear the full truth in the MLM
video.

Pride and the Secret
Closet: Vanity and the Way MLMs Grow

"Mr. Prospect, now you aren't required to
buy more than three product units, but why bother joining unless you plan to
succeed? Besides, all of our products are 100% money back guaranteed."

"Hmmm... To ask for a refund, then, is to
admit defeat. Others appear to be doing O.K. at this. I'm no failure! Perhaps I
should go to another motivational seminar or strong-arm and alienate one more
friend to join. I wasn't fooled! I'm no failure!"

So, the "inventory" and
"recruitment kits," never viable, collect dust. They become a pile in
the back closet or attic, a trophy to pride being unable to admit that greed
seized the moment.

Back to the Pyramids:
Innovative Marketing or Organized Crime?

It is generally agreed that to mislead people in
order to get their money is morally reprehensible. It is labeled
"theft" or "fraud," and those who do it should be punished.
No one is naive enough to suggest that you can't make money at it. Crime can
pay, at least temporarily.

Pyramid schemes are illegal. They are illegal
because they are exploitative and dishonest. They exploit the most vulnerable
of people: the desperate, the out-of-work, the ignorant. Those who start and
practice such fraud, should, and increasingly are, being punished for their
crimes.

But add a product for cover, and call it an MLM,
and people are willing to swallow its legality. Is this true? Really? Who says
so?

The Feds versus the MLM
Gang: The Other Side of the Story

It is a fact that a few large MLMs have survived
against the best efforts of law enforcement officials to shut them down,
spending millions of dollars to protect, lobby, and insulate themselves. But
the same could be said for any organized crime. It is difficult to stop once it
becomes so large.

And MLMs look so legitimate to the public, so
decent. So many nice people are involved. Surely, it can't be illegal! The
people lower down may even defend the very organization that is robbing them,
hoping that they might get their chance to make "the big money"
later.

But if it looks like a duck, walks like a duck,
and quacks like a duck, it probably is a duck. Unless it is an MLM, and then it
is NOT a pyramid.

The Feds generally see it differently... when
the ML (multi-level) aspect begins to eclipse the M (marketing) of products or
services.

People can make money in an MLM, undeniably. The
moral issue is: Where is the money coming from? Selling product? Then why not
sell the same product in the "real world"?

But everyone knows that the real incentive is
the pyramid aspect, and the product just the excuse to make it legal, or at least
the MLM promoter would like you to believe it is legal.

The Mob and the MLM: A
Stretched Analogy?

Talk to a mobster, and he will tell you that he
is "merely misunderstood in his benevolent intentions." "We are
just trying to 'build our business.'" "It's all a conspiracy to make
us look bad." "The Feds are out to get us because they are jealous or
afraid of our new way of life." "Why, look at all the good we
do!" "We are looking more legitimate every day." "Here's a
statement from a famous DA that the Mob is really a good organization and no
harm ever comes from it." "We've even got a minister to endorse us
now!"

Propaganda and MLM
Expansion

The MLMers of the new millennium are starting to
sound a lot like the gangsters of yesteryear. In an era where management
science and the law generally condemn MLM, they've "got their own
experts," from academia or law, who are "on the payroll."
Confidence, remember, is key.

Regardless of all the vehement denials, MLMs are
all to some extent pyramid schemes, and pyramid schemes are
illegal. Sure, some are "getting away with it," but so did the Mafia
for decades. It is hard to stop a juggernaut, especially one that has taken
such pains to look legitimate and misunderstood, that is highly organized, and
that has so much money from its victims to propagandize, lobby, and defend
itself. And so the exploitation goes on.

If these guys show up in your neighborhood, you
are either "in" or "out," family or target, friend or foe.
Suspicion rules the day; everyone has an "angle"; greed supplants
innocence. The "neighborhood" is turned into a marketplace, and may
never recover from the blow.

The ethical questions remain: Are MLMs a morally
acceptable way to make money? Are they--and will they continue to be--legitimate?

MLM Proselytizing:
Beneath Begging?

If money is needed that badly, why not simply
ask friends and family for help rather than taking money from them under false
pretenses--and also selling them a bill of goods? By "sponsoring"
them, you have not only conned them and profited at their expense, you have
made them feel like losers, since they are not able to make a success of the
hopeless MLM concept.

Once seen, only the morally blind, or
consciously criminal, could continue in such a "business."

But wait, perhaps you could recruit... your
mother!

Moral Inventory

By way of review, the prospective MLM initiate
has to face and resolve these ethical issues:

1.Do I want to be involved
in encouraging people to be more materialistic?

2.Do I want to sell a
product that perhaps couldn't be sold any other way?

3.Do I want to be a part
of an enterprise famous for slander, libel, and rumor?

4.Do I want to be a part
of a company that may employ criminals as marketing experts?

5.Do I want to make money
off my ability to convince people that an unworkable marketing system is
viable?

6.Do I want to be known
among my friends and family as a person who tried to con people with a thinly
veiled pyramid scheme?

If you can answer these questions "yes,"
training is available... But remember that God is watching, even if you never
get "successful" enough for the Feds to notice you.

MLMs grow by exploiting people's relationships.
If you are going to be in an MLM, you swallow hard and accept this as part of
"building your business." This is "networking." But to
those not "in" the MLM, it seems as if friendship is merely a pretext
for phoniness, friendliness is suspected as prospecting, and so on. There is no
middle ground here, try as you might.

While this is the most difficult point to make,
it is perhaps the most important. Anyone who has any experience with an MLM has
strong feelings, either for or against, and this is the problem.
Polarization runs deep.

High-pressure Selling --
Reserved for Pyramids Only

When it comes to selling product, MLM sales reps
are probably no more aggressive or obnoxious than ordinary salespeople. Since
most are not salespeople by nature, and it is characteristic that MLMs attract
few people with any experience selling this particular product or service, they
usually sell through pre-fab "parties" or home "demos."
Thus, sales pressure is exerted by situation, if at all.

It should be noted that when selling product,
the only distinction from a real-world business is the possibility for
deception due to the "looseness" of the MLM and the incentive to
exaggerate claims without any accountability. Other than this, selling product
in an MLM is fairly similar to selling any product in the real world.

But when it comes to getting you "signed
up" as a "distributor," the MLMers get pushy and deceptive
beyond the boundaries of polite social norms.

Remember, an MLM is defined by its rewarding
people to recruit others in multiple levels.

"Mother, Let Me
Tell You About a Fantastic Opportunity..."

Even ex-accountants are willing to practice the
crudest of high-pressure selling tactics, at least when it comes to
"signing people up." The end justifies the means, when it comes to
getting people to come to the "meetings," where the objective is to
get a materialism frenzy going at high pitch through a slick speaker or video.
The reasons for this "confidence building" should be obvious by now,
but here we are considering the relationship cost associated with the
"success" of the MLM.

The above title is meant to be absurd. Most
people, no matter how jaded, would not foist such a con on their own mothers.
Even if people don't know the specifics of what is wrong with MLMs, intuition
often warns us: "Don't tamper with that relationship." The first marks
for recruitment are the gullible, or the "expendable" friends. But
successive moral compromise, experience, and desperation... may yet lead to
"good old Mom."

Never Admit You Are
Wrong

Many have left high-paying jobs to "pursue
their dreams" in an MLM. Having been conned so dramatically, they do not
easily admit defeat. It seems easier to cling to the bad dream in an increasing
cycle of desperation to make the MLM work against all odds. "Losers"
at the bottom congregate into support groups, perhaps spinning-off another MLM
where they can be "boss."

There is an undeniable camaraderie among MLMers.
But for everyone else, "there goes the neighborhood." It is saddening
to see people being encouraged against all instinct and common sense to chase
after an illusory "pot of gold," but what can be done?

Counting the Cost: The
First Church of MLM

Many readers will share the experience of
observing MLMs divide families, friends, churches, and civic groups. Lifelong
friends are now "prospects." The neighborhood is now "a market."
Motives change, suspicions rise, divisions form. The question is begged:
"Is it worth it?"

Especially nasty is the church situation. Will
the pastor join? If not, he will take a dim view of MLM proselytizing at church
functions; animosity will rise, factions will form. You are either
"in" or out. If the pastor joins, then those who are not
"in" will feel a little uncomfortable in this church.

A church (or any community group) can be easily
torpedoed by an MLM.

Trust Your Instincts?

For most people, thankfully, the MLM experience
usually ends in very quick financial failure and is then sidelined. Two
possible responses are: 1) being embarrassed about participation, or 2)
becoming even more intractable when the MLM has failed. You will find the
latter chasing after the latest "get rich quick" scheme with similar
results. "If we could have just sponsored so and so--they have so many
friends--we would have made it."

Thus, there is reason for the "bad
taste" most people have for MLMs. By instinct if not experience or
insight, we wince at the thought of what we know will follow in the wake of an
MLM. Relationships strained, factions formed, deception, manipulation, greed,
loss, a closet full of videotapes, brochures, and useless inventory that
"everybody wants."

Disease Alert: Beware of
MLM Blindness

Apparently, it is difficult for gung-ho MLMers
to see how they look from the outside. They can watch lifelong friendships
unravel, churches and civic groups poisoned, the avoidance of friends and
family, etc., and never see that MLM was the cause.

If you try to point this pathology out, you are
treated as if you have attacked the very gospel! Perhaps for some, the MLM
approach is a new gospel?

They will claim to have made "new
friends," most of which are MLMers or new acquaintances who could be
considered "future prospects." The shallowness of these "new
friends," the stilted conversations among the "old friends," and
the embarrassment, in general, for what seems clear to everyone but the MLMer
go unnoticed. Callousness sets in; standards are lowered.

Of course, it could be pointed out that this
might have happened anyway. Perhaps the die-hard MLMers would have ruined their
friendships anyway in some other non-MLM business failure. Is the MLM really
the cause, or just the vehicle?

Business failure of any type is traumatic on the
relationships involved, but in most small businesses there is at least the chance of
success. And this is never the case in an MLM, unless "success" can
be defined as profiting off of the failures of others.

Non-MLM real-world businesses that offer
products of interest to friends, family, etc., such as insurance agents and
small retail shop owners, seem to be more circumspect in dealing with personal
relationships in all but a few rare (and grievous) cases. But the MLMer is
recognizable by duplicity of friendship overtures, overbearing glad-handing,
full-time prospecting, outrageous initial deception, and social callousness.
This is no accident, but rather sheer desperation. How could it be otherwise?
For the active MLMer is in a hopeless bear trap: with hubris as one steel jaw
and oversaturation the other.

And so the MLM relationship "bull"
tramples through the relationship "china closet," blindly ruining
fragile and valuable things. Some never pull out of this, figuring the coldness
they experience in their emotional lives is due to some other cause than their
MLM participation.

The Aftermath

One can't help but wish that the
"neighborhood" could be like it once was. But an MLM storm has blown
through, ruining valuable relationships with no regret or conscience. And brace
yourself, another one is coming. Perhaps it is in that smiling face approaching
you, or in that nice letter you just received from a "friend"?

What goes unnoticed to the MLMer is that when
the neighborhood is turned into a marketplace, something precious is lost...
which is not easily regained.

This aspect of the MLM experience should not be
underestimated, and the reflective reader would do well to think twice about
the value of friends, family, community, and church fellowship before joining
or continuing in an MLM.

Summary of What's Wrong
With Multi-Level Marketing

1.MLMs are "doomed by
design" to recruit too many salespeople, who in turn will then attempt to
recruit even more salespeople, ad infinitum.

2.For many, the real
attraction of involvement in multi-level marketing is the thinly veiled pyramid
con-scheme made quasi-legal by the presence of a product or service.

3.The ethical concessions
necessary to be "successful" in many MLM companies are stark and
difficult to deal with for most people.

4.Friends and family
should be treated as such, and not as "marks" for exploitation.

It is hoped that by clearly pointing out
"What is Wrong With Multi-Level Marketing" that many might be spared
the inherent and associative pitfalls by avoiding the practice.

As well, for those who insist on practicing MLM,
it is hoped that this analysis will serve as a handy framework of problem
areasto be avoided if and where this is possible.

For more, see the Frequently Asked Questions,
Additional Points and Rebuttals section athttp://www.vandruff.com/mlm_FAQ.html
E-Mail the author of this article, Dean Van Druff, at end of this section.

NOTE: This article was written in 1990 and was one of the first to
critique MLM. Now there are many voices and resources concerning “product-based
pyramid schemes.” Here are a few of my favorites.

The Pyramid-Scheme-Alert (PSA)
organization offers consumer information on MLMs, news of legal cases,
analytical tools, insightful articles, and an opportunity to affect new laws
and social change by membership and contribution. You can do your own evaluation of any MLM program or
suspected pyramid scheme.

Believe, The Movie is a humorous take on “Network Marketing”. Both MLMrs and
“anti-MLM zealots” (ahem) are both lampooned.

Dr. Jon Taylor's website includes surveys of MLM
tax preparers (do they really make money?), answers the question of
“odds of success" at MLM verses gambling, and provides a history of MLM at http://www.mlm-thetruth.com